How do you change a Local Sponsor in Dubai?

by Vishakha Agarwal 18, Dec 2023

There is a high demand for businesses in Dubai, which eventually increases competition in the market and raises some requirements for setting up a business in Dubai. One of the significant requirements for foreign investors is to find a local sponsor who will own most of the stakes in the business. It is essential for acquiring a mainland license in Dubai, Abu Dhabi and other emirates in the UAE. However, there might be situations where a local sponsor has to be changed. In the write-up below, there is a breakdown of what you need to take into account and a detailed procedure on how to change local sponsor in Dubai.

What is a Local Sponsor?

A local sponsor refers to an individual or entity that provides support, sponsorship or assistance to another individual or business within a specific region. They are a 51% shareholder within the company they invest in, as provided by law.  

Main Reasons for Changing a Local Sponsor in Dubai

The operational powers of the company are in the hands of the director/manager, but a local sponsor in Dubai has various roles and responsibilities in the company. They don’t interfere in any company’s activities but hold the power to sign on the company’s immigration and labour-related affairs. However, circumstances arise to change the sponsor, and the reasons to change them are as follows –

  i) Inaccessibility to the local sponsor:

Many business owners and investors in the market do not have direct access to the local sponsor, but they rely on PROs, consultants or lawyers. The formation of a business occurs through these intermediaries without a formal introduction to the sponsor. These business owners do not possess essential data, like passport details, location details, contact details, etc, of the local sponsor. In short, there is a level of indifference or direct communication between owners and sponsors, and that’s a prime reason for changing a local sponsor in Dubai.

  ii) Unavailability of the Local Sponsor:

Another issue various business people face is the unavailability of a local sponsor in the company. Companies face communication and legal issues, which affect business relationships and reduce the chance of expansion due to the unavailability of the sponsor. 

  iii) Restricted Rights:

Local sponsors are majorly appointed for foreign businesses to operate, and they hold a certain percentage of ownership. Limited rights refer to the restrictions/limitations imposed on the foreign business owner regarding control, decision-making or profit-making. 

  iv) Migration and Labour Rights:

The sponsorship system plays a vital role in immigration and labour rights. Individuals of the company change the local sponsor due to migration and labour rights because of the following reasons –

  • To explore better job opportunities or working conditions.
  • If issues like non-payment of wages, poor working conditions or mistreatment are faced.
  • Individuals who are looking for career growth.
  • Change in employment status.
  • To benefit from improved legal protections.

  v) Uncertainty of Procedures:

There are various reasons to change a local sponsor in Dubai due to the uncertainty of procedures, and some of them are – 

  • Leads to inefficiencies and delays in various business activities.
  • It can expose businesses to regulatory risks and legal issues.
  • It may restrain smooth transition or expansion into new markets.
  • It may result in communication challenges between the business owner and the local sponsor.
  • Leads to mismanagement of various factors, further leading to consequences for the business.

  vi) Documentation:

The relationship between sponsors is formalised through legal documentation. It holds various reasons for changing a local sponsor, and they are –

  • Shift in the business strategies leads to amendment of documents or updating sponsorship arrangement.
  • Conditions and agreements are usually documented in legal contracts. So, issues or disagreements between the foreign business and the local sponsor may lead to a change in the company's sponsor.
  • Changes in the corporate structure necessitate a revision of the sponsorship documentation.

  vii) Dispute Resolution:

Differences in interest, lack of cooperation, default in contracts, legal issues, and incompatibility lead to disputes between the business owner and local sponsor, which leads to changing your local sponsor.

Procedure of How to Change Local Sponsor in Dubai

Changing a local sponsor has reasons and consists of a procedure, various legalities and formalities. There are different types of local sponsors in UAE, and each of them has its requirements, so choosing the right sponsor according to your needs is possible by following the steps explained below –

  i) Deals with the New Sponsor:

The first step is to make deals and agreements with a new local sponsor who suits the business, understands the requirements of the business, and is willing to agree to all the terms and conditions of the company.

  ii) Termination of Agreement with Current Sponsor:

The next step to change your sponsor is to end all the agreements with the current sponsor. The company needs to follow the terms of the termination, provide notice and complete all the dues according to the contract. This termination notice must be submitted to The Department of Economic Development.

  iii) Obtain a No Objection Certificate:

The company must obtain a No Objection Certificate (NOC) from the current sponsor, indicating that they have no objections to change in the sponsorship. The authorities require this document.

  iv) Changes in Trade Licenses:

The company must apply for an amendment to the trade licenses with the DED to reflect changes in the sponsorship. They must submit relevant documents for approval of these changes.

  v) Documents of the New Sponsor:

While looking for a local sponsor in Dubai, the company must provide the required documents of the new sponsor to the relevant authorities. The papers must include personal documents, passport copies, visa copies, etc., per the authorities.

  vi) Approvals from the DED:

The authority will review the applications and the new sponsor’s eligibility, and if it deems fit, they will approve the change in the sponsorship.

  vii) Update Immigration Records and Other Government Departments:

There might be updates required to the immigration records, which include cancelling the old visa and applying for a new one for the new sponsorship. They must inform other relevant government departments or agencies about the change in sponsorship.

Dubai is known for the businesses incorporated and developed in the place. It raises the need for a local sponsor in Dubai because they are helpful in the expansion and growth of a business setup. Due to various changes and updates in the market, changes in a local sponsor from time to time are also necessary. This article explains the main reasons and steps of how to change local sponsor in Dubai, which ultimately benefits the company. This procedure could be slightly complex, but with the guidance of Commitbiz, you can successfully change the company's sponsor with compliance. Contact us today!


Why do Businesses change their Local Sponsors?

  • The local sponsor is busy or unavailable

  • Sponsors are difficult to contact (this happens when the companies are in contact with the sponsor through a 3rd party)

  • Appointing the sponsor is costly

  • Lack of clarity in the processes

How can companies move from 49% to 100% foreign ownership in Dubai?

By changing their present Memorandum Of Association as it registered with the Economic Department for updating the changes. 

For that to happen companies have to -

  • Seek approval (initial) from the economic department

  • Register the changed MOA 

  • Pay the requisite fee

  • Changing the trade license for the company for those changes to start reflecting

How to change my LLC company to a Sole Proprietorship in Dubai?

You cannot convert an LLC company with more than 1 shareholder to a Sole Proprietorship.

What you can do is transfer the LLC company license to a solely owned LLC.

What things should be kept in mind before selecting a Local Sponsor?

  • You should do a thorough background check of that sponsorer

  • Compensation should be approved by both the parties

  • Try to get sponsors working in the government departments, because seeking connections after that is tough.